ELASTICITY DISCUSSION QUESTIONS 4) You are the manager of a theater. At present
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ELASTICITY DISCUSSION QUESTIONS 4) You are the manager of a theater. At present the theater charges the same admission price of $8 to all customers, regardless of age. You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults. You tell your supervisor that your proposal is likely to increase revenue. "What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer. Explain the concepts of cross-price elastic of demand, using one of the examples in the table above. What does a positive or negative value indicate? When doing elasticity of demand what is the sign always for a normal good? 5)Explanation / Answer
If the demand is inelastic, then the revenue will increase.
Total revenue is calculated as the quantity of a good sold multiplied by its price. Price elasticity of demand and total revenue are closely interrelated because they deal with the same two variables, Price and Quantity. If the product has elastic demand, revenue can be increased by decreasing the price of the good. P will decrease, but Q will increase at a greater rate, thus increasing total revenue. If the product is inelastic, then one can raise prices, sell slightly less of that item but make higher revenue.
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